Ask the Experts – Asset Movement from Deselected 403(b) Vendors

The plan’s adviser asks: “Can a plan sponsor require that the assets be moved into the “current plan” if a participant wants to take a distribution while employed?  In addition, does the plan sponsor have to supply the deselected vendor with a copy of the plan document?”

It is important to make sure the various roles of the parties are clearly established.  A contract or custodial account with a vendor is not a “plan” by itself.  It is merely a funding vehicle for a plan.

Under the final 403(b) regulations and applicable IRS transition guidance, a plan document must generally be adopted by December 31, 2009, with the applicable funding vehicles incorporated into the plan.

In addition, remember that an employer often plays two roles – plan sponsor and fiduciary.  It is always important to keep in mind which role the employer is playing at any given time.  Amending a plan is generally a plan sponsor “settlor” function, while administering the plan and coordinating among vendors is generally a “fiduciary” function.  In some cases, an employer will serve in both capacities but, in other cases, a committee or other person will serve in the fiduciary role.

With respect to the question addressing the transfer of funds, assuming the question really means moving the funds into an active funding vehicle, the sponsor will need to check the terms of the annuity or custodial account to see if it includes distribution language in the existing document.  If so, it may be difficult or impossible to remove this right.  While a plan sponsor could amend its plan to require a transfer to the new funding vehicle, doing so could lead to conflicts with the vendor.  Because this issue can be complex, you should consult with counsel before proceeding down this road. 

The sponsor should note that the deselected vendor contract or custodial account does not qualify for the grandfathered transition relief under Revenue Procedure 2007-71 because contributions were made to the deselected vendor in 2009, and, as such, an information sharing agreement is necessary.

With respect to the question addressing the copy of the plan document, yes, the plan fiduciary should provide a copy of the document to the vendor (although some vendors may not want/accept a copy).  However, the sponsor should take note that many vendors (and possibly their contracts or custodial accounts) take the position that the terms of their contracts or custodial accounts control in the case of an inconsistency with a plan document.  As such, careful coordination with vendors is always important to attempt to minimize operational mistakes and plan document errors.

-David Levine, Groom Law Group, Chartered

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.